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Civilian Health Insurance
Options of Military Retirees
Findings from a Pilot Survey
Louis T. Mariano, Sheila Nataraj Kirby, Christine Eibner, Scott Naftel
Prepared for the Office of the Secretary of Defense
Approved for public release; distribution unlimited
The research described in this report was prepared for the Office of the Secretary of
Defense (OSD). The research was conducted jointly by the Center for Military Health
Policy Research, a RAND Health program, and the Forces and Resources Policy Center,
a RAND National Defense Research Institute (NDRI) program. NDRI is a federally
funded research and development center supported by the OSD, the Joint Staff, the Unified
Combatant Commands, the Department of the Navy, the Marine Corps, the defense
agencies and the defense Intelligence Community under Contract W74V8H-06-C-0002.
Library of Congress Cataloging-in-Publication Data
Civilian health insurance options of military retirees : findings from a pilot survey / Louis T. Mariano ... [et al.].
p. cm.
Includes bibliographical references.
ISBN 978-0-8330-4127-2 (pbk. : alk. paper)
1. Retired military personnel—Insurance requirements—United States. 2. Veterans—Health and hygiene—
United States. 3. Federal Employees Health Benefits Program (U.S.) 4. Insurance, Government employees’
health—United States. I. Mariano, Louis T.
UB448.C58 2007
368.38'20086970973—dc22
2007016785
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Summary
Traditionally, DoD has provided health benefits to active-duty and retired service personnel
and their families. After 20 years of service, active-duty personnel can retire and are immediately eligible to receive retiree health benefits for themselves, their spouses, and dependent
children. DoD retirees are encouraged to enroll in TRICARE Prime, which has an annual
enrollment fee of $230 for individual coverage and $460 for family coverage. Retirees and
their families also have access to TRICARE Standard/Extra, which requires no enrollment
contribution but has less generous cost-sharing provisions than TRICARE Prime.
Since service personnel can conceivably retire in their late 30s or early 40s, many of these
individuals are working in second careers and have access to non-DoD health insurance. Yet
the growing gap between civilian health insurance premiums (estimated to be $2,713 on average for family coverage in 2005) and TRICARE enrollment fees makes TRICARE an increasingly attractive option vis-à-vis civilian coverage. Recent evidence suggests that employees are
declining employer-provided insurance in favor of alternative sources of health insurance coverage, such as TRICARE.
In an effort to better understand the extent to which military retirees have access to and
are enrolled in civilian health insurance plans, DoD asked the RAND Corporation to conduct a pilot survey of retired beneficiaries under the age of 65. The goals of the 2005 Survey of
Military Retirees included the following:
• Estimate the percentage of retirees who are eligible for civilian health insurance, either
through their own or their spouse’s employment or through a union or a professional
association.
• Estimate the percentage of retirees enrolled in civilian health insurance plans.
• Explore reasons for not participating in civilian employer health insurance.
• Estimate the premium costs retirees pay to enroll in their civilian health plans.
• Estimate how changes in civilian premiums would affect participation in civilian
employer-provided health plans.
• Estimate the use of TRICARE facilities and benefits by those with civilian health
insurance.
The purpose of this report is descriptive rather than analytical. We present a descriptive
overview of the findings from the survey on the topics listed above. Follow-on work at RAND
is using these survey results, combined with other data, to assess usage of TRICARE medical
xiii
xiv
Civilian Health Insurance Options of Military Retirees: Findings from a Pilot Survey
care and military facilities and the implications of benefit design changes on retiree behavior
and health care expenditures.
Survey Methodology
The Defense Enrollment Eligibility Reporting System (DEERS) is a computerized database of
military personnel and their families and others who are entitled under the law to TRICARE
benefits. DEERS registration is required for TRICARE eligibility. We used the August 2005
DEERS to identify retired officers and enlisted personnel who were living in the continental
United States (CONUS), were under age 65, and had been retired for at least one year (i.e.,
retired on or before June 30, 2004). We selected a stratified random sample of 1,600 military
retirees, evenly split between officer and enlisted retirees, and administered a computer-assisted
telephone survey that asked about the labor-force participation of the respondent and his or her
spouse, eligibility and participation in civilian health insurance options, reasons for participation or nonparticipation, use of TRICARE and other coverage to pay for medical care, and
the likely effect of premium increases or decreases on participation in civilian health insurance
plans (if eligible). The fielding period was February–March 2006, with a response rate of 60
percent. Overall, 68 percent of the officers responded to the survey, compared with only 51
percent of the enlisted personnel. The sample observations were weighted, using probability
of selection and post-stratification weighting, to account for the differential probability of
selection produced by the sample’s stratified design and to take into account the differential
response rates among the strata.
Because the data reported here are estimates based on a sample, it is important to indicate
the uncertainty surrounding the estimate. Here, we report the lower and upper bounds of a
95 percent confidence interval around the estimated population mean or proportion.
Findings
Employment Status and Eligibility for Civilian Health Insurance
Overall, 80 (77.1, 83.0) percent of the survey population was employed. About 78 (74.5, 81.8)
percent of officers and 81 (76.9, 84.4) percent of enlisted personnel were employed. Eightyseven (84.4, 90.2) percent of retirees ages 60 years or younger were employed, compared with
53 (43.6, 61.9) percent of those between 61 and 64 years. Most of the retired military personnel who worked were private-sector or government employees and most worked full time, especially those 60 years old or younger. Well over half—54 (50.0, 58.7) percent—of the retirees
who were employed were working for large employers, with 500 or more employees.
Over four-fifths—85 (82.5, 88.1) percent—of the military retirees were currently married
and living with their spouse. Fifty-four (49.7, 58.9) percent of spouses of officers and 62 (57.6,
67.4) percent of spouses of enlisted personnel were employed, and half (43.5, 53.9 percent) of
these worked for large firms. Overall, 13 (10.7, 15.9) percent of retired military households
had no one employed in the civilian labor force, 40 (36.3, 44.0) percent had one wage-earner
Summary
xv
(most often the military retiree in married households), and 47 (42.9, 50.2) percent had two
wage earners.
Of the 80 (77.1, 83.0) percent of retirees who were employed, 82 (79.2, 85.7) percent
were eligible to enroll in a plan offered by their current employer, and almost all of them (95.1,
98.7 percent) reported that their spouses and/or dependents were also eligible to enroll in such
plans. Overall, of the survey population of military retirees, 65 (61.7, 68.7) percent were eligible for insurance provided by their employer and 58 (54.4, 61.7) percent of the population
was eligible to enroll family members in such plans. Sixty-nine (64.6, 74.1) percent of retirees
with employed spouses reported that their spouse’s employer offered civilian health insurance
and, of those, 89 (84.3, 93.1) percent reported that they and/or their dependents were eligible
to enroll in the plan offered by the spouse’s employer. The government and large private-sector
firms were the most likely to offer insurance. Part-time workers had very limited access to
insurance. Only 16 (12.8, 18.6) percent of the population reported being eligible for health
insurance through another civilian source, such as a union or professional association.
If we count all sources of coverage for either the retiree or their families, we find that
78 (74.5, 80.9) percent of the survey population reported having access to some other form
of health insurance for themselves and/or their families through their own or their spouse’s
employer or through a professional association (Table S.1).
Across the population, only 8 (5.4, 9.6) percent of military retirees were offered incentives by their own employer, and 3 (1.3, 3.9) percent were offered incentives by their spouse’s
employer, not to enroll in civilian insurance plans, but only 1 (0.2, 1.5) percent reported that
such incentives were specific to TRICARE-eligible employees.
Table S.1
Percentage of Retired Officers and Enlisted Personnel Eligible to Enroll in a Civilian Plan and Those
Currently Enrolled in Such a Plan, February–March 2006
Officers
Eligibility and Enrollment Status
Enlisted Personnel
Total Population
Estimate
95% confidence interval (lower bound, upper bound)
Retiree or family eligible to enroll in a civilian plan
through an employer or professional association
72.9
(69.0, 76.8)
79.2
(75.2, 83.2)
77.7
(74.5, 80.9)
Retiree or family eligible to enroll but not currently
enrolled in a civilian plan through an employer or
professional association
35.5
(31.6, 39.5)
40.3
(35.4, 45.1)
39.1
(35.4, 42.9)
Retiree or family eligible to enroll and currently enrolled
in a civilian plan through an employer or professional
association
37.4
(33.1, 41.6)
38.9
(34.1, 43.7)
38.5
(34.7, 42.3)
Total percent enrolled in civilian plan (self and/or family)
offered by employer, professional association, insurance
company, and other
42.6
(38.2, 46.9)
42.1
(37.2, 47.0)
42.2
(38.3, 46.1)
NOTE: Eligible to enroll means that at least one family member (retiree, spouse, or dependent) was eligible. Not
currently enrolled means that no family member was enrolled.
xvi
Civilian Health Insurance Options of Military Retirees: Findings from a Pilot Survey
Enrollment of Military Retirees in Civilian Health Care Plans
Overall, 73 (69.0, 76.8) percent of retired officers and 79 (75.2, 83.2) percent of retired enlisted
personnel were eligible to enroll themselves or their families in their own or their spouse’s
employer-provided plan, or in a plan offered by a professional association or union (Table S.1).
However, half (45.9, 54.8 percent) of those who were eligible chose not to enroll either themselves or their families in civilian health insurance plans for which they were eligible. Overall,
only 39 (34.7, 42.3) percent of the population was enrolled in an employer-provided civilian plan or through a professional association. Few retirees and their families were enrolled
in health insurance from other sources—direct purchase from insurance companies or perhaps through Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage. Adding
enrollment through these sources, we find that 42 (38.3, 46.1) percent of the survey population was enrolled in a civilian plan and had either self- and/or family coverage.
Reasons for Enrolling or Not Enrolling in Civilian Plan for Which Retirees/Families Were
Eligible
It is important to understand the reasons for enrollment in civilian plans as well as the reasons
for not enrolling.
We first present reasons offered by respondents for enrolling in civilian plans. About half
(48.5, 57.7 percent) of those currently enrolled mentioned that they preferred the network of
doctors/hospitals in the civilian plan, while 49 (42.6, 54.4) percent reported the inconvenient
location of medical treatment facilities (MTFs) as the reason for enrolling in the civilian plan.
Thirty (24.5, 35.3) percent were eligible for free coverage through their employer or other nonTRICARE source. One-quarter (20.1, 30.2 percent) reported a lack of TRICARE coverage
for needed medical care and the administrative burden and reimbursement delays associated
with TRICARE as reasons for enrollment in civilian plan. Twenty (15.9, 25.5) percent said
that their civilian coverage was less costly than TRICARE and, of this group, about half mentioned that the premiums were lower, as were the deductibles and copays.
Turning now to reasons for not enrolling in civilian plans, we found that the cost of
the premiums was by far the most important reason for not enrolling in a civilian plan—
mentioned by close to four-fifths (73.4, 82.9 percent) of those eligible but not enrolled, followed by high copays (58 [52.5, 64.0] percent) and high deductibles (57 [51.5, 63.3] percent).
Half (45.0, 56.9 percent) reported that they preferred doctors in MTFs or TRICARE, and
30 (24.0, 34.7) percent said that the lack of choice with respect to doctors/hospitals was a
factor in not enrolling. One-fifth (16.5, 26.5 percent) mentioned that the civilian plan did not
cover care they thought they needed, while one-tenth (8.2, 15.7 percent) complained about the
paperwork and reimbursement delays. A very small percentage of those eligible (5 [2.5, 7.6]
percent) reported that their employer had provided an incentive to use the military coverage.
Premium Costs for Enrolling in Civilian Health Plans
According to a survey by the Kaiser Family Foundation and Health Research Educational
Trust (KFF/HRET), in 2005, the average premium paid by an employee for employerprovided health insurance was $610 for single coverage and $2,713 for family coverage (Kaiser
Family Foundation and Health Research Educational Trust, 2005). The KFF/HRET survey
Summary
xvii
also reported that among covered employees in firms with three or more employees, 21 percent paid no premium contributions for health care coverage. In our survey, 21 (15.8, 27.0)
percent of retired officers and 23 (16.5, 30.1) percent of enlisted retirees who were enrolled in
civilian plans reported that they did not pay any premiums for the plans in which they were
enrolled. About 16 (10.9, 21.7) percent of officers and 26 (19.1, 33.2) percent of enlisted personnel reported paying less than $1,000 per year for health insurance coverage, while 25 (19.0,
31.1) percent of officers and 23 (16.1, 29.8) percent of enlisted personnel paid $2,500 or more
for health insurance.
As expected, annual premium costs varied by whether the respondent elected self-coverage only or family coverage. The average premium was $691 ($444, $939) for self-coverage
only and $1,993 ($1,736, $2,249) for both self- and family coverage. The self-coverage figure is
close to the $610 reported in the KFF/HRET survey for the same year. However, the average
premium for family coverage was lower than that reported above in the KFF/HRET survey.
This is not entirely surprising. These retirees have access to TRICARE coverage at very favorable rates, so they are unlikely to purchase other health insurance if it is expensive.
Price Elasticity of Demand for Civilian Employer-Provided Health Insurance
In our survey, we asked retirees who were enrolled in a civilian health plan what their response
would be if their civilian premiums rose by 25 percent. About 42 (38.3, 46.1) percent of the
survey population was enrolled in one or more civilian health insurance plans. Of these, about
half (44.1, 58.5 percent) of those paying a premium reported that they would give up their
civilian plan if the premiums rose by 25 percent. Thus, health plan enrollment, according to
our estimate, is very elastic, –2.0 with respect to premiums, i.e., if civilian premiums increase
by 10 percent, enrollment in civilian plans may decline by 20 percent. While this is a rough
approximation, retirees appear to be quite conscious of premiums, and large premium increases
for civilian health insurance may result in a substantial shift to TRICARE usage. Ringel et
al. (2002) find that own price elasticities of demand for civilian health insurance range from –
0.10 to –1.75, suggesting that enrollment is moderately to highly sensitive to premium price.
About 50 (45.9, 54.8) percent of the military retirees who were eligible for civilian health
insurance had not enrolled in civilian plans. Asked whether they would enroll in these plans
if premiums were to decline by 25 percent from their current level, very few—less than 10
(5.4, 13.7) percent of retired officers and 21 (15.3, 27.5) percent of retired enlisted personnel—
reported that they would enroll in the civilian plan for which they were eligible if premiums
fell by 25 percent, giving us a demand elasticity of –0.38 for officers, –0.86 for enlisted personnel, and –0.76 overall. Of the population as whole, only about 3 (1.8, 4.7) percent of officers
and 9 (6.4, 12.0) percent of enlisted personnel would enroll in a plan if prices fell.
The sharp difference in the responses to questions about increases versus decreases in civilian plan premiums likely reflect a difference between those currently enrolled in civilian plans
and those who have chosen not to enroll in those plans. Most retirees who are enrolled are
paying a premium contribution, and their preference for civilian insurance does not appear to
be strong enough to prevent their dropping the insurance if the premium increases. In contrast, retirees who have not enrolled in a civilian plan are probably avoiding a high premium
xviii
Civilian Health Insurance Options of Military Retirees: Findings from a Pilot Survey
contribution and would not reconsider their decision even if the premiums were to decrease
substantially.
Use of TRICARE Facilities and Benefits
In 2005, 39 (34.0, 43.4) percent of all retired enlisted personnel and 45 (40.8, 49.7) percent
of all retired officers received care at a civilian facility only, and another 12 (8.6, 14.9) percent and 16 (12.9, 19.0) percent, respectively, chose to go to a military facility only. Only 6
(3.8, 8.4) percent of all retired enlisted personnel and 2 (1.1, 3.5) percent of all retired officers received care at a VA or Uniformed Services Family Health Plan (USFHP) facility only.
Some—between 15 and 18 percent—received care at two types of facilities, most commonly at
a civilian facility and an MTF (11.0, 17.9 percent of enlisted personnel and 14.4, 21.3 percent
of officers). We see a similar pattern among families of military retirees.
Retirees who were enrolled in a non-TRICARE civilian plan relied on a mix of both
TRICARE and non-TRICARE civilian plans for medical treatment, despite being enrolled in
civilian plans. For example, only 38 (32.2, 43.8) percent of this group said they relied exclusively on the non-TRICARE civilian plan, while 36 (30.1, 41.5) percent said they used both
TRICARE and the non-TRICARE plan; 8 (4.8, 11.0) percent said they relied on TRICARE
exclusively, with the probability of exclusive TRICARE use dropping significantly when the
current premium costs for the non-TRICARE civilian plan were higher. Overall, 51 (44.8,
56.7) percent reported that they used TRICARE for all or some of their medical care.
Military retirees enrolled in a non-TRICARE civilian plan also relied heavily on
TRICARE for coverage of prescription drugs. For example, while only 40 (33.8, 46.4) percent
of officers and 30 (23.4, 37.3) percent of enlisted retirees enrolled in a civilian plan reported
using only the non-TRICARE plan for prescription drugs, a much larger percentage relied on
TRICARE (either exclusively or in conjunction with other coverage). Overall, 56 (50.4, 62.3)
percent of retirees enrolled in a non-TRICARE civilian plan reported relying on TRICARE
to some extent for their prescription drug coverage.
Policy Implications
DoD’s fiscal year (FY) 2007 budget request proposed raising TRICARE enrollment fees,
deductibles, and pharmacy copays for retirees to decrease the difference between cost sharing in
TRICARE and civilian plans. Congress did not support these changes; the final authorization
bill rules out any changes through the end of calendar year 2007. DoD hopes that narrowing
the premium contribution gap would lead to a shift away from TRICARE, or would at least
discourage further shifts to TRICARE. While price increases will undoubtedly lead to some
decrease in the amount of medical care demanded, it is not clear how large the cost savings
would be. The savings would depend on several factors—among other things, the relative rate
of increase in civilian and TRICARE health insurance premiums and trends in accessibility
to such plans in the civilian sector (given that some small firms are opting not to offer health
insurance in the face of rising costs). In any case, as long as DoD premiums are considerably
lower than civilian premiums, small increases in TRICARE premiums are unlikely to result
in noticeable shifts away from TRICARE usage. Further, if TRICARE premiums remain
stable while premiums in the civilian sector escalate, TRICARE usage is likely to increase.
Summary
xix
Data from annual Kaiser Family Foundation and Health Research Educational Trust Survey
(2005) indicate that civilian premium contributions for family insurance coverage increased by
46 percent between 1996 and 2005. Our findings show that while a substantial majority of the
retiree population is eligible for civilian health insurance, about half of those eligible choose
not to enroll, primarily for cost reasons. Our findings also highlight the fact that retirees (1)
are extremely cost-conscious and might drop civilian coverage if costs of the civilian plan rose
and (2) continue to rely on TRICARE for some of their medical care even if they enroll in a
civilian plan.
The survey we fielded, while providing important information, was a pilot study with a
small sample size. Understanding the potential impact of an increase in TRICARE premiums
will require more complete information than we collected. For example, to fully model the
impact of a premium increase for TRICARE, we need data on the civilian premium amounts
faced by those who did not enroll, reasons for choosing to enroll in TRICARE Prime, and
better precision on the estimates of interest than was possible with our limited sample size.
Civilian employers may be considering multiple options for keeping their own expenditures for
health care lower, including raising employee contribution amounts or entertaining the adoption of plans with higher employee deductibles and copayments. Since most respondents do
not know the premium contributions, deductibles, and copayments required by health plans in
which they are not enrolled, this information would need to be collected from employers rather
than from individuals. In addition, the survey would need to ask directly about the impact
of proposed changes in TRICARE fees and copays and about how likely future changes in
civilian health plans are to affect use of both civilian and TRICARE medical care. A more
complete understanding of choices and likely behavior in the face of increasing premiums and
copays for TRICARE would require a larger survey that collected data from both retirees and
their civilian employers.